Fed: Patience and data-driven cuts – TD Securities

TD Securities strategists Oscar Munoz and Eli Nir argue that the Federal Reserve will stay on hold near term as the Iran conflict and mixed US labor data keep uncertainty elevated. They still expect three rate cuts starting in June, contingent on continued inflation progress and no major shock from geopolitics or tariffs, with policy decisions remaining highly data-dependent.

Fed on hold as cuts loom

"The evolving Iran conflict and an unclear labor market picture will keep the Fed on the sidelines in the near term. Developments in the conflict will continue to dominate the market's attention, but Fed officials have noted it is too soon to make material outlook changes given mounting uncertainty."

"We maintain our Fed call for three cuts this year starting in June owing to "good news" inflation progress—barring significant price pressures from a sustained conflict in Iran."

"With the labor market showing signs of stabilization, we expect the Fed to shift its attention toward the inflation mandate and its anticipated progress for 2026. This means that the onus will be on the data to force the Fed's hand."

"We project a more gradual 25bp quarterly easing path this year, starting in June and ending in December with a Fed funds rate at 3.00%."

"The outlook will be fluid amid uncertainty around the Trump administration's execution of new trade, fiscal, regulatory, and immigration policies. New developments in financial markets and the escalation of geopolitical conflicts remain key risks for our economic projections over the forecast horizon."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)